Judge: H. Jay Ford, III, Case: 22SMCV01457, Date: 2023-08-24 Tentative Ruling

Case Number: 22SMCV01457    Hearing Date: August 24, 2023    Dept: O

Case Name:  Slatkin v. Energyport, Inc., et al.

SUBJECT:                DEMURRER TO COMPLAINT

MOVING PARTY:  Defendants Energport Inc. (erronesously sued as “Energyport, Inc.”), Xue-Qing Fan and Steven Cai

RESP. PARTY:        Plaintiff Renny Slatkin

TENTATIVE RULING

            Defendants Energport, Inc., Xue Qing Fan and Steven Cai’s Demurrer to the Complaint is SUSTAINED WITH 20 DAYS LEAVE TO AMEND as to the 3^rd cause of action for fraud, and OVERRULED as to the 1^st cause of action for breach of contract, 2^nd cause of action for breach of account stated, 4^th cause of action for quantum meruit, 5^th cause of action for unpaid wages and overtime and 6^th cause of action for failure to provide accurate wage statements. 

Plaintiff has not filed a First Amended Complaint

I.  Plaintiff sufficiently alleges ground to hold Defendants Fan and Cai liable on each cause of action based on alter ego and Labor Code §558.1

            Defendants demur to each cause of action on Fan and Cai’s behalf on grounds that they are not parties to the employment agreements and the alter ego allegations are insufficient. 

            To plead alter ego, there must be factual allegations that would establish a unity of interest, such as commingling of funds and other assets, the holding out of the entities as liable for Fan and Cai’s debts, use of the same offices and employees, use of one another as a mere shell or conduit for the affairs of the other, inadequate capitalization and failure to adhere to corporate formalities.  See Automotriz Del Golfo De California SA de CV v. Resnicke, et al. 47 Cal.2d 792, 796; see also Sonora Diamond Corp.et al. v. Supr. Ct. (2000) 83 Cal.App.4th 523, 538.  A plaintiff need only allege ultimate facts to plead alter ego and survive demurrer. See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4^th 221, 236.

“To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.”  Leek v. Cooper (2011) 194 Cal.App.4^th 399, 415.  Merely alleging that “a person owns all of the corporate stock and makes all of the management decisions is insufficient to cause the court to disregard the corporate entity.”  Id. 

Plaintiff alleges sufficient ultimate facts establishing that Defendants are the alter egos of one another.  See Complaint, ¶¶14-16.  As such, Plaintiff alleges sufficient basis to hold Defendants Cai and Fan liable for the debts and obligations of their alleged alter ego, Defendant Energport.

In addition to alter ego as a basis to impose liability on Defendants Cai and Fan’s, Plaintiff alleges both individual Defendants are liable for the causes of action based on the Labor Code §558.1, the “Fair Day’s Pay Act.”  Under Labor Code §558.1, an employer or a natural person who is an owner, director, officer, or managing agent of the employer can be held liable for violations of Labor Code §§203, 226, 226.7, 1193.6, 1194 or 2802. 

Plaintiff alleges that Cai and Fan are owners, directors, officers or managing agents of Energport.  See Complaint, ¶¶6, 7 and 11.  Defendants dispute that Cai is an owner, director, officer or managing agent of Energport.  However, Defendants are not entitled to demur based on a factual dispute.  Factual allegations are accepted as true on demurrer.  Defendants do not attack any other aspect of Plaintiff’s “Fair Day’s Pay Act” allegations.

Defendants’ Demurrer to the Complaint based on the failure to allege any basis to hold Cai and Fan liable for the alleged causes of action is OVERRULED.  Plaintiff’s alter ego allegations are sufficient.  Defendants also fail to address the “Fair Pay Day Act” allegations. 

II.  Plaintiff sufficiently alleges that he was an employee of Energport

            “Whether a person is an employee or an independent contractor is ordinarily a question of fact but if from all the facts only one inference may be drawn it is a question of law.”  Jackson v. AEG Live, LLC (2015) 233 Cal.App.4^th 1156, 1179.  “The existence and degree of each factor of the common law test for employment is a question of fact, while the legal conclusion to be drawn from those facts is a question of law.  Even if one or two of the individual factors might suggest an employment relationship, summary judgment is nevertheless proper when, as here, all the factors weighed and considered as a whole establish that [plaintiff] was an independent contractor and not an employee for purposes of Labor Code sections 202 and 2802.”  Arnold v. Mutual of Omaha Ins. Co. (2011) 202 Cal.App.4th 580, 590.  The question of what legal standard or test applies in determining whether a worker is an employee or an independent contractor of purposes of a wage order is a question of law. See Dynamex Operations W v. Supr. Ct. (2018) 4 Cal.5th 903, 942, fn 16.

            Plaintiff’s status as an employee is required to state a claim for violations of Labor Code §§226 and 510 for unpaid wages and overtime and failure to provide accurate wage statements.  Plaintiff alleges that he was an “employee” of defendants.  Plaintiff does not allege any ultimate facts that would support such a legal conclusion.  On demurrer, the Court accepts as true all factual allegations in a complaint, including those facts that may be implied or inferred from those expressly alleged.  See Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4^th 500, 505.  The Court does not, however, accept the truth of contentions or conclusions of fact or law.  Id. 

            Oddly, however, neither party addresses the controlling statute: Labor Code §2775.  Pursuant to Labor Code §2775(b)(1), “[f]or purposes of this code…, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:  (A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity's business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” 

            Pursuant to Labor Code §2775(b)(3), “If a court of law rules that the three-part test in paragraph (1) cannot be applied to a particular context based on grounds other than an express exception to employment status as provided under paragraph (2), then the determination of employee or independent contractor status in that context shall instead be governed by the California Supreme Court's decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).”

            Therefore, under Labor Code §2775, for purposes of Labor Code claims, the plaintiff is considered an employee until otherwise established by the alleged employer under Labor Code §2775.  As such, Plaintiff’s factual allegations that he provided services to Defendants for remuneration is sufficient to plead employee status in the 5^th and 6^th causes of action for violations of Labor Code §§226 and 510. 

            Defendant argues Plaintiff’s Exhibit B conflicts with Plaintiff’s claim that he was an employee.  See Complaint, Ex. B, “Sales Representative Agreement,” ¶5.  Under the Sales Agreement, parties expressly agreed that “[t]his Agreement shall not create a…employer/employee or similar relationship between Company and Sales Representative.  Sales Representative shall be an independent contractor.”  Id. 

            However, the parties’ contractual characterization of their relationship is not determinative.  “A party's use of a label to describe a relationship with a worker will be ignored where the evidence of the parties' actual conduct establishes that a different relationship exists.”  Duffey v. Tender Heart Home Care Agency, LLC (2019) 31 Cal.App.5th 232, 258 (plaintiff established disputed issue of fact on summary judgment regarding her status as independent contractor or employee under either “control over wages” test and common law test; plaintiff established agreement referring to her as independent contractor was offered on a “take it or leave it basis”); Linton v. Desoto Cab Company, Inc. (2017) 15 Cal.App.5^th 1208, 1222-1223 (“the mere fact the employment agreement characterizes the relationship of the parties in a particular way is not determinative of the actual legal status of the parties”). 

            In addition, the initial agreement between the parties dated 12-1-16 refers to Plaintiff as a “Company Employee” and Plaintiff’s “employment” with Defendant Energport.  See Complaint, Ex. A.  Based on Exhibit A of the complaint, Plaintiff was an employee of Defendants’ pursuant to the express terms of the parties’ written employment agreement from 12-1-16 through 5-1-20, the date parties’ executed Exhibit B. 

            Plaintiff alleges he provided services to Defendants for remuneration, which is sufficient to allege an employee-employer relationship for purposes of the 5^th and 6^th causes of action for violation of Labor Code §§226 and 510.  Plaintiff’s status as an employee is not an essential element of any Plaintiff’s other causes of action.  Defendants’ Demurrer based on failure to allege an employment relationship is OVERRULED.

III.  3^rd cause of action for fraud—SUSTAIN WITH 20 DAYS LEAVE TO AMEND for failure to plead with specificity

            The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages.  See Civil Code §1709.  Fraud actions are subject to strict requirements of particularity in pleading.  See Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.

Consistent with the rule requiring specificity in pleading fraud, a complaint must state ultimate facts showing that the defendant intended or had reason to expect reliance by the plaintiff or the class of persons of which he is a member.”  See Geernaert v. Mitchell (1995) 31 Cal. App. 4th 601, 608. A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation.  See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.

            Plaintiff fails to allege the nature of the misrepresentation, when it was made, who made it, how it was made and the authority by which the representation was made on Defendant Energport’s behalf.  See Complaint, ¶¶33-34.  Defendants’ Demurrer is SUSTAINED WITH 20 DAYS LEAVE TO AMEND. 

IV.  Plaintiff sufficiently alleges the agreements, invoices and orders upon which his breach of contract, account stated and quantum meruit causes of action are based

            Defendants argue Plaintiff fails to allege with specificity the invoices or orders upon which the account stated or quantum meruit causes of action are based.  There is no such pleading requirement applicable to breach of contract, account stated or quantum meruit claims. 

            Defendant also argues the complaint is uncertain, because two agreements are attached to the complaint and it is unclear which one Plaintiff claims was breached.  However, Plaintiff alleges Defendants breached “any and all Agreements” between the parties, which includes both Exhibits A and B. 

            Defendants’ Demurrer based on Plaintiff’s alleged failure to identify the contracts sued upon and failure to plead the invoices and orders sued upon with specificity is OVERRULED.  There is no pleading requirement that the invoices and orders be alleged with specificity, and it is clear that Plaintiff is suing for breach of both Exhibits A and B. 

V.  Plaintiff sufficiently identifies what services were provided to Defendants during his employment

            Defendants demur to the complaint on grounds that Plaintiff fails to specifically identify what services were provided.  There is no requirement that Plaintiff specifically identify the nature of the services he provided to support his causes of action.  In addition, Plaintiff alleges the nature of the services he provided to Defendants at ¶22 of the Complaint and in Exhibits A and B to the Complaint.  See Complaint, ¶22; Ex. A; Ex. B, ¶2.  Defendants’ Demurrer on grounds that Plaintiff failed to allege what services he performed is OVERRULED.